More stores offer layaway - at a cost

Growing number of layaway programs offer advantages, but they are not free

Cashier Monica Jimenez explains a layaway contract to a customer making purchases at the Sears store in Chula Vista last week. Layaway is increasingly popular at major retailers including Sears, Kmart and Marshalls. At the Sears store in Chula Vista, appliances, electronics and even children's clothing go on layaway these days.
— Peggy Peattie

Cashier Monica Jimenez explains a layaway contract to a customer making purchases at the Sears store in Chula Vista last week. Layaway is increasingly popular at major retailers including Sears, Kmart and Marshalls. At the Sears store in Chula Vista, appliances, electronics and even children's clothing go on layaway these days.
— Peggy Peattie

• What happens if a payment is missed? Is there a financial penalty? Does the item return to inventory?

• Discover if there is a refund or store credit if you decide you don’t want the item after making some payments.

• What price adjustment is made if the item goes on sale after being put on layaway?

• Find out Better Business Bureau rating of the retailer or service.

Sources: Better Business Bureau, Detroit News

Should savvy shoppers cheer the widespread return of layaway programs for the holidays?

Retailers are running advertising blitzes touting their layaway programs for the holiday shopping season. And the resurgence of the old-fashioned purchasing method is generating buzz on social media sites and praise in personal finance blogs.

But paying a store to set aside merchandise while you slowly pay the balance, over a few weeks or months, may not be the best financial decision.

For starters, the fees associated with the programs can be more costly than credit card interest. Also, many programs lock in the item’s price at the time it’s put on layaway, that means shoppers may miss later sales. Plus, if good intentions lose out to poor planning and a payment is missed, shoppers may end up losing money when the layaway is canceled.

The deferred payment program appeals to two types of consumers: those who live paycheck to paycheck, and more affluent shoppers who want to manage their cash flow, said Salima Yala, divisional vice president of layaway for Kmart and Sears.

Proponents of layaway programs say they encourage families to set holiday budgets and avoid the January debt hangover.

Layaway carries its own risks — orders can be canceled if a payment is missed.

“Layaway is a terrible consumer decision,” said Brad Wilson, founder of deal sites Bradsdeals.com and BlackFriday2011.com. “It’s an ugly alternative to saving, which is free and you can do yourself.”

Even strong supporters of such programs emphasize that before signing up, it’s important to make sure the program’s rules are clear, that you’re confident you’ll be able to make timely payments, and it’s part of a larger holiday spending plan.

“What you don’t want to do is commit to layaway, and then start making purchases with your heart, not your head, and start charging those,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. Do that and you’ll have to pay off the layaway and face charge-card expenses after the holidays.

Here are some of the issues to consider before signing up for a layaway program:

Fees

There’s no such thing as a free layaway.

Walmart, for example, charges a $5 fee to enter its program, and requires a down payment of 10 percent of the purchase price. Sears and Kmart charge $5 for an eight-week payment plan and $10 for a 12-week plan, plus a down payment of $20 or 20 percent, whichever is greater.